Banking Review

The return of the second tier

OPINION

As Treasurer Wayne Swan prepares to release a package of banking reforms, and Senate committee members get ready to grill bankers about the level of competition in their sector, it’s clear we could soon seen the return of the second tier.

From out of cycle rate rises, to disruptive payments glitches, the big four banks are looking like last season’s must-have accessory, and politicians and consumer groups are scrambling around for the hot new thing to put their money on.

This doesn’t leave much, given most of the second tier was swallowed by the big four at the height of the financial crisis, but the regional banks and mutual sector stand to benefit significantly.

These small institutions should make the most of their new time in the spotlight, but let’s not forget they’ve been quietly innovating while their larger competitors have been distracted by acquisitions, systems overhauls, endless restructures and an almost unhealthy obsession with markets other than their own.

Second tier institutions stand to gain more from investments in the online channel as they typically have a smaller branch footprint and a greater incentive to acquire customers through alternative channels.

Distribution group Firstfolio is proving a master of the multiple-brand strategy, adding New-Loan to its range, and beating NAB direct arm UBank to market as the latest online mortgage provider. Firstfolio isn’t waiting around for the government to sort out funding issues, preferring product innovation to lure new investors into the mortgage market.

Suncorp, having recently overhauled its in-house built Internet banking platform, has just become the first bank in Australia to launch an integrated online budgeting tool for customers (page 4), which will enable it to increase its already high share of wallet,  bringing it alongside US banking giant and cross-sell guru Wells Fargo.

Victorian based credit union mecu is running rings around Westpac’s sustainability drive as it prepares to become the first institution to disclose how retail customer’s funds will be responsibly invested. And PayPal, which is carving out its own segment of the merchant services business, is getting ready for an online shopping boom which most of the major banks have ignored.

Competition is back in banking. It’s the stalling of innovation by the major banks that requires real attention.